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Texas Lawmakers Consider BPP Tax Reform

by Foy Mitchell, Dallas, December 2019

 

The Texas Senate Finance Committee held a hearing on December 3 to discuss possible changes to the state’s Business Personal Property (BPP) Tax.

 

Several speakers addressed the committee, both pro and con. Those representing business interests supported changes to eliminate all or portions of the BPP tax. Local governments and some citizen groups were opposed.

 

The discussion revolved around two key issues – business competitiveness and tax fairness.

 

The Business Position

 

Businesses argue that having a tax on equipment, machinery, and similar tangible assets places a financial burden on their cost of doing business. As a result, Texas products are often more expensive, and the cost is ultimately passed on to the consumer.

 

In addition to paying BPP Tax, companies must also pay tax on their inventory. This puts Texas in an unfavorable position relative to attracting companies with large inventories to the Lone Star state.

 

The Freeport Exemption is not mandatory in Texas, unlike most other states that a grant a universal Freeport exemption. Speakers before the committee said this represents another way that Texas companies must operate at a competitive disadvantage.

 

Local Governments’ Argument

 

Local governments that depend on tax revenue argued that Texas is already a business-friendly state, so changes aren’t really needed. The BPP tax constitutes from 10%-18% of local governments’ tax revenue in Texas. Any changes via exemption, further valuation adjustments, etc. could result in other taxpayers picking up the lost revenue.

 

Speakers against changes in the BPP tax also pointed out that Texas businesses benefit because the state does not have an income tax. The lack of a personal income tax puts companies at a very favorable position to recruit and attract personnel. It creates a very positive environment for their work force.

 

What’s Ahead?

 

From listening to the Committee commentary, analysts believe a study group may be commissioned to look at the entire property tax system, with the goal of determining the fairness of the system as applied to all taxpayers.

 

For example, with the myriad of special valuations and exemptions applicable to numerous classes of property, it is difficult to determine who is paying fairly. Homeowners get homestead exemptions, tax freezes for seniors, and more. Businesses also have various exemptions, abatements, and tax incentives. Exactly who is paying on what basis, is somewhat confusing.

 

The Texas Legislature operates under a biennial system and won’t convene again until January 12, 2021. Top policy priorities will eventually be decided. Whether BPP reform will make the cut remains to be seen.